TheStreet

When Google first announced in August of 2015 that it was re-structuring itself as a holding company called Alphabet (GOOGL - Get Report) , most people were perplexed: What would this new company be about?

Nearly four years on, most people are probably still perplexed. With Google's traditional advertising business still making up over 98% of the holding company's revenue, it's less and less clear what purpose the holding company structure plays. 

The formation of the holding company was done "to better allow us to structure teams in ways that we believe will produce the fastest, most focused innovation possible for moonshot projects," Google said in its 2015 annual report. The explicit promise was that Alphabet would entertain businesses that were more "speculative." The implicit promise was that those bets would someday be meaningful financially.

But the "Other Bets" division, as the rest of Alphabet outside of Google is called, hasn't produced any follow-on businesses capable of matching Google's advertising, cloud and YouTube businesses in scale, though it has incurred spectacular losses.

Alphabet's Other Bets includes the Waymo self-driving automobile venture, Google Fiber broadband access business and Verily life sciences business. Revenues for the group totaled $595 million in 2018, on which the company lost $3.4 billion on an operating basis. The most noteworthy thing to come out of Other Bets is the Nest home appliance business, which was bought by Google for $2.6 billion in 2014, the year before Alphabet was formed. And Nest is now a part of Google.

Hence, the most obvious product to come out of Alphabet since its formation was via the billion-dollar purchase of an established leader. That doesn't seem like a wild bet so much as business as usual for a tech company, and it's not clear why any of that had to happen under a holding company structure.

As for the road ahead, there's no hint as to the prospect of something that is developing toward a breakthrough new product or service of scale at Waymo or at Verily or the rest of Other Bets. To be sure, Waymo itself has the potential to be a hot property. It is in some respects viewed as a competitor to both Uber (UBER) and Lyft (LYFT) , whose combined market capitalization is $91 billion. A lot hinges on the extent to which Waymo will be successful in commercializing what remains a research project at this point. 

Nor is it clear if Alphabet will do another Nest-style M&A deal, though it's certainly possible. 

The company's public communications tend to leave out that kind of insight, and Alphabet's chief executive, Larry Page, is not a public presence. Even the comments by Google chief Sundar Pichai can be cryptic about the more obscure parts of Google.

Pichai, speaking on the company's most recent earnings call, in April, offered upbeat statements about Google's cloud computing business, for example, but little detail. Google's Cloud business is perceived as sharply trailing Amazon's (AMZN - Get Report) AWS and Microsoft's (MSFT - Get Report) Azure cloud computing service in terms of revenue. But the company won't disclose Google Cloud's total revenue, similar to Microsoft's failure to disclose Azure's revenue, but unlike Amazon, which reports AWS as a line item.

It's clear that Google Cloud is meaningful: it was the biggest driver, the company said in April, of the 25% rise in the the "Other" category of products at Google for the first quarter, which totaled $5.45 billion. During the call, an equity research analyst tried to tease out some clues by asking Pichai whether the cloud business has revenue growth that is as much or more than that of its competitors. Pichai skirted the question.

Hence, Google remains very much a company that has some interesting things going on, and a lot of things about which it won't disclose very much. Initiatives such as Verily and Waymo may be quite worthwhile, and perhaps the holding company structure of Alphabet protects them from being lost within the operations of Google.

But with very little disclosure, and no forecasting whatsoever, it's not entirely clear what these businesses mean to Alphabet as a company. More important, it's not clear why the projects are a worthwhile use of Alphabet's capital, which, after all, belongs to shareholders as well. 

The Alphabet structure has always represented a way for co-founders Page and Sergey Brin to have a free hand to explore. Much like Berkshire Hathaway, another prominent holding company, and its famed manager, Warren Buffett, investors in Alphabet have been asked to view the company as a vote of trust in the judgement of Page and Brin.

And based on the stock performance, there has been a lot of trust. Google shares are up 69% since the announcement of the Alphabet structure in early August of 2015. That is quite a bit better than the 42% return of the S&P 500 over the same time period. 

It's an open question whether the next recession will challenge that trust and faith. It's possible Google's advertising revenue could suffer in a downturn as it did in 2009, during the great recession. If so, the priorities of Other Bets may come under greater scrutiny. It may then be time to clear up some of the perplexity.

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Tiernan Ray owns no shares of any companies mentioned in this article.